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ETF Specialist

Not All Index-Tracking Funds Are Created Equal

This Gold-rated exchange-traded fund offers exposure to U.S. small-cap stocks on the cheap.

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Index-construction differences among market-cap-weighted funds can materially impact performance in the small-cap arena because market impact costs are more meaningful. For example, the Russell 2000 Index's popularity and lack of buffering rules have contributed to its chronic underperformance compared with other popular small-cap U.S. stock indexes.

On the other hand, funds tracking less popular small-cap indexes that employ buffering rules to limit turnover should have a leg up over the long haul.

Adam McCullough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.